CapitalSource shares rise on upgrade

Shares of commercial lender and money manager CapitalSource Inc. rose more than 5 percent Tuesday after it was upgraded to "Buy" by a UBS Investment Research analyst.

Shares were up 21 cents, or 5.2 percent, to $4.24 in afternoon trading on a day when other investment management companies saw mixed results, with several trading 2 to 3 percent lower.

UBS analyst Omotayo T. Okusanya upgraded the company's stock to "Buy" from "Neutral," citing its improving road to recovery.

The Chevy Chase, Md.-based company reported in February that it swung to a fourth-quarter loss, the result of increases in derivative losses and loan-loss provisions.

The company lost $15 million, or 7 cents per share, compared with earnings of $60.3 million, or 34 cents per share, during the same period the previous year.

In a note to investors on Tuesday, Okusanya increased the price target to $5.50 from the prior $2 per share.

He said Capital Source has several options to improve its balance sheet strength. Its debt maturities have been extended and the company could receive further extensions if needed or raise cash through a stock offering. The company also expects to complete federal Housing and Urban Development financing in the second quarter.

"We believe debt extension or pay-down via equity raise should remove bankruptcy risk priced into CSE's stock," Okusanya said.

Credit will likely remain a drag, but that is reflected in management expectations. Earnings next year likely will be weak, but strong earnings per share growth is expected in 2011 as credit normalizes, he said.